Gold is a precious metal that has proven to be a store of value and a hedge against inflation. Investors use the safe-haven metal to insulate their portfolios from macroeconomic shocks, including recessions and geopolitical tensions.
The yellow metal touched a fresh record high of US$2,650 an ounce last month and has rallied roughly 30% this year, outpacing major indices such as the S&P 500. In the last five years, gold prices have surged over 75% due to factors such as the COVID-19 pandemic, inflation, and rising geopolitical concerns.
Investors should consider gaining exposure to gold to diversify their portfolio and lower overall risk. One way is to invest in gold mining companies positioned to generate higher total returns than the physical asset, as they can expand production and lower costs, resulting in economies of scale.
Newmont Corp. (TSX:NGT) is a quality gold miner that remains a top investment in 2024. Let's see why.
The bull case for Newmont stock
Valued at $82.6 billion by market cap, Newmont is the largest publicly traded gold mining company globally. With assets located in the Americas, Africa, and Australia, Newmont expects to produce 6.9 million ounces of gold this year.
Newmont benefits from a portfolio focused on Tier 1 operations, which allowed it to produce 1.6 million ounces of gold in Q2 and 477,000 gold equivalent ounces of copper, silver, lead, and zinc. The mining giant generated US$1.4 billion in operating cash flow and US$594 million in free cash flow in Q2, which meant it spent more than US$800 million in capital expenditures.
Newmont continues to offload non-core assets and is on track to earn US$2 billion from its capital recycling initiatives in 2024. The proceeds will be used to strengthen the balance sheet and advance capital allocation priorities. In the June quarter, Newmont reduced its debt by US$250 million and returned US$540 million to shareholders via dividends and buybacks.
Moreover, since closing the Newcrest acquisition a few months back, Newmont is on track to achieve US$500 million in cost synergies. In Q2, its cost synergies totaled US$100 million, bringing its run rate to US$205 million.
Is Newmont stock undervalued?
Rising gold prices have allowed Newmont stock to return close to 30% to shareholders year-to-date. The gold miner underperformed in the first half of 2024 as it lowered its quarterly dividend to US$0.25 per share from US$0.40 per share, as it is focused on optimizing its precious metals portfolio. Despite the dividend cut, Newmont offers shareholders a forward yield of 1.9%.
Notably, Newmont disclosed plans to repurchase US$1 billion worth of stock in the next 24 months and might raise its dividend payout once the portfolio restructuring is complete.
In the last 12 months, Newmont's free cash flow has risen to US$649 million, up from US$97 million in 2023, due to a focus on cost savings and rising profit margins. The stock is priced at 12 times operating cash flow, which is not too expensive given that adjusted earnings are forecast to expand from US$1.61 per share in 2023 to US$3.85 per share in 2025.
Analysts remain bullish and expect the gold mining stock to surge over 15% in the next 12 months.
